I am wondering which way is simplest to upgrade kernel to latest 2.6.x then install the asterisk.

By installing DSL-N, etc. Did you read the Asterisk documentation?

Quote

Asterisk is designed to work on Linux kernel version 2.4, however there is some support for kernel 2.6. If you are trying to build a stable system, it is recommended that you use kernel version 2.4. The following sections will assume you are running on a 2.4 kernel based system.

I also checked in MyDSL and I didn't see Bison, which is their compiler of choice. I didn't bother looking for information for the newer GUI version. You can compare for yourself what you'll need for any application by comparing requirements and dependencies against what's in DSL.http://damnsmalllinux.org/packages.html

--------------"It felt kind of like having a pitbull terrier on my rear end."-- meo (copyright(c)2008, all rights reserved)